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Ex-Jefferies Exec. Charged in Mortgage Securities Fraud

Add former Jefferies & Co. (JEF) executive Jesse Litvak to the gallery of Wall Streeters charged with mortgage back securities fraud; a Federal grand jury in Connecticut hit him with 11 counts of securities fraud, one count of TARP (Trouble Asset Relief Program) fraud and four counts of making false statements to the government.

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The SEC also filed civil securities fraud charges against Litvak. The SEC and Department of Justice say Litvak would buy MBS from one customer and sell them to another customer. Nothing wrong with that, but it appears, at least according the feds, that Litvak lied about the price at which his firm purchased the MBS in order to sell them at a higher price and make more money for Jefferies.

Litvak allegedly lied to his buyers, telling them he had a fictional seller arranging a MBS trade. It turns out the fictional seller was his own firm and the MBS came from their inventory. Brokers are supposed to provide honest and accurate information when they broker these trades.

The victims of these alleged bogus trades include Alliance Bernstein, BlackRock (BLK), Magnetar Capital and Putnam Investments, to name a few. The lucrative lies alleged by the government inflated MBS prices and profits to more than $2.7 million in additional revenue for Jefferies, which in turn boosted Litvak’s bonuses.

The alleged fraud took place between 2009 and 2011. Jefferies fired Litvak in December of 2011.